Focus: Hong Kong hedge funds – December 2002
In brief: The Hong Kong Securities and Futures Commission has recently announced that it has authorised the first hedge funds products for distribution to retail investors in Hong Kong, reports Senior Associate Daniel Yeo.
The Hong Kong Securities and Futures Commission (SFC) has authorised the first three hedge fund products available to retail investors in Hong Kong. This announcement follows the release of the SFC's Hedge Fund Guidelines in May 2002.
Two of the funds are single hedge funds and the third is a fund of hedge funds (FHF). The market expects that these authorised funds will be launched in the first quarter of 2003.
The SFC has been reported as saying that the first three authorised hedge funds 'fully complied' with the hedge fund requirements and that only one application for authorisation has so far been withdrawn - in circumstances where the relevant manager could not satisfy the experience criteria.
A number of other hedge funds in the approval pipeline have had difficulty meeting all the SFC's requirements, so market participants will be keen to scrutinise the public offering documents of the approved funds to see if any SFC waivers have been granted.
Marketing of hedge funds
The SFC has also issued a circular regarding the marketing of hedge funds and has indicated that it expects that the Code of Conduct for Persons Registered with the SFC will be complied with (unless relevant exemptions are granted). In particular, registered persons with the SFC are expected to:
- take all reasonable steps to properly assess a client's ability to bear the financial risks arising from investing in hedge funds;
- give clear and reasonable advice when recommending hedge funds to clients;
- have suitably qualified and trained employees at a level commensurate with their responsibilities in marketing hedge funds;
- provide clients with relevant information regarding hedge funds to assist clients in making an informed assessment of the hedge fund product; and
- establish internal controls for the development, implementation and assessment of marketing activities with respect to hedge funds.
Hedge fund reporting requirements - conclusions released
The SFC has also released its consultation conclusions on Hedge Fund Reporting Requirements (the HFRR), which will come into effect on 20 December 2002. The HFRR sets out the minimum disclosures required for Hedge Fund annual, semi-annual and quarterly reports.
Under the HFRR, authorised hedge funds are required to file and distribute:
- one annual report within four months of the end of the relevant financial year (FHF have until six months from the end of the relevant financial year);
- one semi-annual report within two months of the end of the relevant period; and
- four quarterly reports within one month of the end of the relevant period (FHF have until six weeks from the end of the relevant period).
The SFC has decided not to require mandatory adoption of International Accounting Standards (IAS ) for the preparation of hedge fund financial reports. However, the SFC has noted that the IAS remains recommended accounting best practice.
For further information, please contact:
- Matthew BarnardPartner,
Hong Kong
Ph: +852 2903 6212
Matthew.Barnard@aar.com.au
